This month I decided to review the performance of Indian banks across ownership forms in the twenty first century. I created six categories ?SBI, SBI associates, nationalised banks, old private sector banks, new private sector banks, and foreign banks. To keep the analysis simple, I reviewed market share movements of deposits, advances, non-interest income and net profit between 2000 and 2007. I kept IDBI bank out of the analysis to keep the analysis consistent over the entire period. The results were stunning.
Deposit market shares have moved significantly over the past seven years. There are two loser categories and one gainer segment. The rest are more or less static. The share of nationalised banks came down from 54% to 49% by March 2006, but then stayed at 49% in 2007. Overall, the segment has seen a loss of 5% over the seven-year period. SBI is faring worse and has come down from 22% to 17% by 2006 and then lost an additional point last year to come down to 16% in 2007. This is a striking 6% share loss in seven years. Foreign banks, old private sector banks and SBI associates stayed more or less constant?foreign banks picked up 1% share last year from old private banks. If you look at percentage loss of share from 2000, what you find is that SBI lost 27% and old private banks lost 32%, while nationalised banks lost only 9%. The big gainers were new private sector banks, taking 10 points of share over the last seven years?6 from SBI and 4 from nationalised banks. In fact, if one were to compare ICICI and SBI over the period, they are mirror images. SBI?s share loss has gone to ICICI. ICICI alone captured a remarkable 8 points of deposit share over the seven year period, making the 21st century very much its own.
The story with advances is similar to that in deposits. SBI has lost 5 points of share while all nationalised banks lost 6 points.
The new private sector banks have gained 10 points of share over the period. The other big loser as a percentage of its total business is the old private banks category. The same pattern holds again with non-interest income over the same time period.
The story with net profits share however is different, less consistent and much more dramatic. SBI?s market share of net profit has fallen a staggering 14%.
It had 28% of the industry?s net profit in 2000, but only 14% in March 2007. Old private sector banks were the other big loser segment, also losing half their starting position in 2000. They have come down from 8% to 4% of the total industry profit. Again, the new private sector banks as a category gained 9 points of profit share over the same period. However, the story with nationalised banks is very different. In 2000, nationalised banks had only 34% of the industry net profit. By 2007, they had raised this to a remarkable 41% share.
I find these results counterintuitive. One can attribute the remarkable growth of new private banks to new business models, effective technology use, well worked incentives and good leadership. SBI?s poor performance compared to other nationalised banks and even its own associate banks, is much harder to comprehend. It started with substantial advantages?its balance sheet, customer relationships, branch network, brand strength and attraction, at least till the mid-1990s, as an employer?compared to nationalised bank segments. Yet, nationalised banks have beaten big brother big time. An explanation, anyone?
Janmejaya K Sinha is managing director, The Boston Consulting Group, India. These are his personal views